SYDNEY — Forever 21 is the latest fast-fashion retailer to touch down on Sydney’s burgeoning Pitt Street Mall.
The Los Angeles-based company last week opened a three-level, 30,100-square-foot store on the strip, which was ranked the world’s fifth most-expensive retail neighborhood in Cushman & Wakefield’s “Main Streets Across the World 2014-2015” report, with average rents of $1,016 a square foot. This was an increase of 25 percent on the previous year.
The Pitt Street Mall unit is Forever 21’s third and largest Australian store to open in the last eight months, after Brisbane and North Ryde, NSW, via a venture with the company’s Middle Eastern licensee, the Dubai-based Sharaf Group.
The store stocks the core women’s wear range, Forever 21 Plus, Forever 21 Contemporary, accessories, cosmetics and lingerie and more than 3,000 square feet of 21 Men. According to Jatin Malhotra, Forever 21’s director of global expansion, men’s wear is the retailer’s fastest-growing category, more than doubling from 3 to 8 percent of the product offer in 2014.
“And that [men’s wear] is the future,” said Malhotra. “Because we are extremely strong in women’s – how do we expand the categories and get more?”
The Sydney flagship is one of 150 stores Forever 21 plans to open in 2015, he said, with another 150 slated to open in 2016, as part of the company’s stated target to reach 1,200 stores – and $8 billion in revenue – by 2017. There are more than 700 Forever 21 stores in 47 markets, with sales on track to reach $4.5 billion in 2015, the company reports.
Taiwan and Egypt will be the only two new markets to open in 2015, said Malhotra. A 20,170-square-foot store opened in the ATT 4 Fun mall in Taipei’s Xinyi district over the weekend, with a second store due to open in Taipei’s Dongqu district in July.
China is Forever 21’s “most challenging” market, said Malhotra. The company has 11 stores there, with plans for five more this year and 100 by 2020.
“China is a high-risk market – we don’t know how the other tier-two cities are going to perform,” he said.
Prices in Australia will remain “extremely similar” to the U.S., despite the strong American dollar against the Australian dollar, which has depreciated around 25 percent against the greenback over the past two years.
Several other deals on Queensland’s Gold Coast and Perth, Western Australia are in the pipeline, said Malhotra – pending the results of Pitt Street Mall.
“We just want to make sure all the bases are secure before we start to expand again,” he said. “It [the weak dollar] is good for the vendors. Even if there’s margin erosion for a couple of years, we would like to keep the money in the local market and continue to grow the business. Our company is owned by Mr. [Do Won] Chang, so we have the flexibility of doing that, so we don’t have to report billings to the Street, so we get away with it pretty well, but again, it is tough right now. We cannot just go and start to increase prices in the same proportion, then we lose the customer. So we’re trying to keep the prices as low as possible.”
In a research note this week, Macquarie Securities analyst Paul Checchin speculated the weaker dollar and increased competition from cheaper rivals likely contributed to a local profit slump and margin decline at Zara, the first of the big four fast-fashion retailers to enter the Australian market in April 2011.
In documents filed to the Australian Securities and Investments Commission, Zara Australia reported a 38.3 percent slide in full-year net profit to 10.2 million Australian dollars in the 12 months ending January, or $8.3 million at average exchange for the period, on sales of 179 million Australian dollars, or $145.4 million, from its 13 stores, up 26.8 percent. Pre-tax earnings slumped by one third to 15.5 million Australian dollars, or $12.6 million. Gross margins declined 4.1 percent to 59.5 percent, while earnings before interest and taxes margins nearly halved from 16.5 percent to 8.7 percent.